The recent floods in Kerala have
caused incalculable misery and destruction.
Three important question that several companies are
asking us is:
1) Whether disaster relief is covered
under Schedule VII of the Indian Companies Act 2013?
2) Whether CSR funds can be contributed
to the Chief Minister’s Relief Fund (CMRF)?
3) Can a company contribute its own products
like bottled water, medicines, toiletries, tea, coffee, biscuits etc., as part
of it’s CSR activities?
1) Disaster relief is covered under Schedule VII
Ministry of Corporate Affairs (MCA) has
under point No. 7 in the Annexure to General Circular dated: 18th
June 2014 (21 of 2014) clarified that: Disaster relief can cover
wide range of activities that can be appropriately shown under various items
listed in Schedule VII.
For example:
i. medical aid can be covered under ‘promoting health care including preventive health care.’
ii. food supply can be covered under eradicating hunger, poverty and malnutrition.
iii. supply of clean water can be covered under ‘sanitation and making available safe drinking water’.
i. medical aid can be covered under ‘promoting health care including preventive health care.’
ii. food supply can be covered under eradicating hunger, poverty and malnutrition.
iii. supply of clean water can be covered under ‘sanitation and making available safe drinking water’.
To read full text of MCA’s circular
please go to: http://www.mca.gov.in/Ministry/pdf/General_Circular_21_2014.pdf
2) Chief Minister’s Relief Fund
Clause viii of Schedule VII of the Indian
Companies Act 2013 cites: “Contribution to the Prime
Minister’s National Relief Fund or any other fund set up by the Central
Government for socio-economic development and relief and welfare of the
Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and
women.”
Unfortunately, only the Prime Minister’s National Relief Fund or any other fund set
up by the Central Government
is cited under Schedule VII of the
Indian Companies Act 2013 and thus contributing CSR funds to the Kerala Chief
Minister's Relief Fund would not qualify as a specified CSR activity.
Recently, West Bengal Chief Minister, Ms.
Mamata Banerjee and Odhisha Chief Minister, Mr. Naveen Patnaik have written
letters to Prime Minister Narendra Modi urging him to consider the
contribution of business houses to the Chief Minister’s Relief Fund (CMRF) as
money spent on corporate social responsibility (CSR) activities.
On 25th July 2018, the Trinamool
Congress also demanded an amendment to the Companies Act 2013 to make
corporate social responsibility funds available to the Chief Minister's
Relief Fund.
Interim options for companies
However, in the meantime, companies
are at liberty to contribute non-CSR
funds to Kerala CMRF and even enjoy 100% tax deduction for the same.
Companies may also contribute to
Kerala CMRF if they wish to, through their corporate
foundation.
Finally, companies could also partner with
and contribute their CSR funds to credible NGOs with track record of at least three
years of service in the field of disaster management.
3) Contributing company products
Ministry of Corporate Affairs (MCA)
has clarified in one of its FAQ that gift of articles or company products is
not CSR. CSR has to be money spent.
MCA’s Answer to FAQ No. 18 is: “Section
135 prescribes ‘… shall ensure that company spends …’ The company has to spend
the amount.”
To read the FAQ please go to http://www.mca.gov.in/MinistryV2/faq+on+csr+cell.html
Thus, once again, companies may voluntarily contribute their own products like bottled water, medicines, toiletries, tea, coffee, biscuits etc., but, it cannot be accounted for as "amount spent" under CSR activity as per Section 135 of the Indian Companies Act 2013.
Noshir H. Dadrawala
Noshir H. Dadrawala